Edited version of private advice

Authorisation Number: 1012646044539

Ruling

Subject: Dairy drink

Question

Is the supply of a dairy drink GST-free?

Advice

No

Relevant facts:

• You are registered for goods and services tax (GST).

• You supply a dairy drink to your customer.

• The packaging describes the product as a "dairy drink".

• The ingredients for the dairy drink are milk, water, yoghurt culture and salt.

• The dairy drink is made by adding yoghurt culture and salt to diluted cow's milk.

• The dairy drink requires refrigeration.

• The dairy drink must be shaken before consumption.

• The dairy drink is consumed to quench thirst.

Reasons for decision

A supply of food is GST-free under section 38-2 of the GST Act if the product satisfies the definition of food in section 38-4 of the GST Act and the supply is not excluded from being GST-free by section 38-3 of the GST Act.

Food is defined in section 38-4 of the GST Act to include beverages for human consumption (paragraph 38-4(1)(c) of the GST Act). Your supply the dairy drink for human consumption. Therefore, the dairy drink satisfies the definition of food in subsection 38-4(1) of the GST Act.

However, subsection 38-3(1) of the GST Act specifies some foods that are excluded from being GST-free. The subsection states:

A supply is not GST-free under section 38-2 if it is a supply of:

(a) *food for consumption on the *premises from which it is supplied; or

(b) hot food for consumption away from those premises; or

(c) food of a kind specified in the third column of the table in clause 1 of Schedule 1, or food that is a combination of one or more foods at least one of which is food of such a kind; or

(d) a *beverage (or an ingredient for a beverage), other than a beverage (or ingredient) of a kind specified in the third column of the table in clause 1 of Schedule 2; or

(e) food of a kind specified in regulations made for the purposes of this subsection.

* denotes a defined term in the GST Act

The meaning of beverage is outlined in subsection 38-4(2) of the GST Act to include water. Goods and Service Tax Determination (GSTD) 2002/2 provides an explanation on the meaning of beverages for GST purposes. Paragraphs 5 to 7 of GSTD 2002/2 state:

5. The GST Act defines beverage to include water, but does not otherwise discuss the meaning of a beverage. The word beverage appears in a similar context in the former sales tax legislation and has been considered by the courts to mean 'a drink of any kind' and, in turn, drink as 'any liquid which is swallowed to quench thirst or for nourishment.'

6. For something to be a drink, it must be a liquid to be swallowed:

• to quench thirst; or

• for nourishment.

7. A liquid providing nourishment will sustain life by assisting in growth or providing energy. A nutritional purpose may be contrasted with a medicinal purpose which arises where a liquid is provided for the treatment of disease or has curative or remedial properties

Therefore, a beverage is a liquid consumed (swallowed) for the purposes of quenching thirst or for nourishment.

The dairy drink is consumed to quench thirst. Therefore, paragraph 38-3(1)(d) of the GST Act will apply to your dairy drink..

Paragraph 38-3(1)(d) of the GST Act

Paragraph 38-3(1)(d) of the GST Act provides that a supply of a beverage or an ingredient for a beverage, is not GST-free unless it is of a kind listed in the table in clause 1 of Schedule 2 of the GST Act (Schedule 2).

Although Item 2 in Schedule 2 (Item 2) provides that beverages that consisting of 95% of milk products or a combination of milk products (listed under item 1 in Schedule 2) are GST-free, your dairy drink is not a milk product listed under item 2.

As the dairy drink is not listed under any of the items in Schedule 2, it is excluded from being GST-free by paragraph 38-3(1)(d) of the GST Act.